Macroeconomic situation and trends in Russian banking system
Russia’s key economic indicators in 2014 were impacted by a number of adverse external factors, including a decline in the oil price and significant geopolitical tension followed by sectorial sanctions imposed on Russia. These external factors contributed to the economic slowdown that started back in 2012 due to structural problems.
Limited access to international capital markets and significantly deteriorating trading conditions coupled with the decline in the oil price contributed to faster capital outflow from Russia and caused sharp weakening of the Russian rouble. In October, the Bank of Russia prematurely introduced a floating FX rate and proposed measures to increase USD liquidity, including FX REPOs and swaps. Nevertheless, the situation on the FX market remained challenging. To stabilise the FX market, the Bank of Russia raised the key interest rate from 9.5% to 17% in December 2014. The FX rate was stabilised, although the weakening was substantial. The year results showed 41.8% RUB depreciation versus USD and 34.2% depreciation versus EUR. Gold and foreign currency reserves dropped by 25% in 2014.
The growth of the key interest rate substantially increased the cost of funding from the Bank of Russia without diminishing its role as the major supplier of liquidity. Retail deposits growth rates in Russian banks slowed down from 19.0% in 2013 to 9.4% in 2014. Striving to compensate for the shortage of internal resources and capital outflow and to maintain lending activity, the Bank of Russia increased lending volumes to banks from RUB 4.8 trillion to 9.8 trillion over the year, with the increase in loans primarily secured by banks’ non-market assets. The result was an increase of Bank of Russia funds in banking sector liabilities from 7.7% to 12% in 2014.
Key Russian borrowers had to seek loans from Russian banks due to limited external financing and fewer opportunities to borrow from the RUB bond market. As a result, unlike the previous year, changes in banks’ loan book were mainly driven by loans to legal entities with a loan book increase of 30.3% versus a 13.2% increase a year earlier. The growth of retail loan book decreased by almost half, reaching 13.8% versus 28.7% a year earlier.
Declining economic growth prospects and real income of the population put pressure on the quality of banks’ loan book. Overdue debt level grew from 4.1% to 4.6% with the worst situation in the consumer lending segment mainly affecting the banks in the high-margin consumer lending market.
High growth rates of lending to corporate customers helped maintain the share of overdue payables in loans to non-financial organisations at the previous year’s level. However, worsening financial positions of some major borrowers called for restructuring of their loans. Moreover, events in Ukraine significantly decreased the quality of loans from Russian banks to Ukrainian borrowers.
The decline in loan book quality and devaluation of the rouble, which called for additional provisions along with sharp growth in funding costs advanced by the Bank of Russia led to a reduction of profits in the banking sector by almost 40% compared to the year of 2013.
Financial markets also ended the year with the RTS USD index and the MICEX RUB index reduced by 45.2% and 7.1%, respectively. The sovereign credit rating of the Russian Federation decreased to the lower boundary of the investment quality rating group.
Despite such external economic challenges, Sberbank kept its leading positions Estimated according to Sberbank’s internal methodology based on data provided by the Bank of Russia. in key segments of the Russian financial market.
|%||December 31, 2014||December 31, 2013|
|Retail Lending (including Cetelem Bank)||36.8||34.0|
|Due to corporate customers||21.9||17.2|
|Due to individuals||45.0||46.7|
A complex macroeconomic environment was also observed in the countries where Sberbank’s subsidiaries operate.
Turkish GDP growth slowed in 2014 to 2.9% versus 4.5% in the previous year. The key factors that contributed to the slowdown were instability in emerging markets and capital outflow intensified by the non-transparent policy of the Central Bank of Turkey.
Economic growth rates in Central and Eastern Europe slightly increased, driven by the improving situation in leading Eurozone economies. However, political risks, such as the unresolved „Greek issue” remain.
The GDP of Belarus growth rate decreased to 1.6% in 2014, while the inflation was maintained at the 2013 level and totalled 16.2%.
Despite a slight slowdown, Kazakhstan economy remained the most stable among all CIS countries. Based on 2014 results, GDP growth amounted to 4.3% (versus 6% a year earlier). KZT devaluation of 16% in February helped to cope with the accumulated imbalance in the external sector for the time being but sped up the inflation to 7.4%.
The recession continued in Ukraine; the country’s GDP fell by 6.8% in 2014, while political risks and the risk of default on government debt still remain high.